What the CFPB is doing for consumers

JenniferOpenshaw

NEW YORK (MarketWatch)—Today marks the one-year anniversary of the new Consumer Financial Protection Bureau, the same agency that Devin Leary-Hanebrink, a compliance professional, said should stand for “Choking Financial Professionals and Business.”

I can see why businesses are concerned—OK, worried. In fact, I’ve talked to top bank officials and many are planning to have their own consumer protection officers to help deal with the new rules and put a more consumer-friendly face to their business.

But the changes we’ve seen in the past year, and are likely to see in the coming year, are what consumers needed to protect them from flat out lies, deception and misdirection.

Have you read the news lately not just about J.P. Morgan but about Peregrine Financial Group and even the Libor-rigging scandal at Barclays? They may not fall into the CFPB’s authority—which includes implementing the Dodd-Frank Act and many other laws related to mortgages, debt, and even leasing—but they do remind us of the gaps in oversight.

“In the year since the CFPB opened its doors, we have focused on making the financial services marketplace work better for consumers,” said the agency’s director, Richard Cordray. “We’re putting in place strong rules of the road to fix the broken mortgage market—a leading cause of the financial crisis and a key part of our economic recovery. We’re also working to cut down on fine print so consumers know before they owe on mortgages, student loans, and credit cards.”

Before I share what’s been done and what’s to come at the new CFPB, let me say that this isn’t your typical government bureaucracy. I’ve been there. I’ve walked the halls. Talked with close to a dozen people. It’s full of energy and young, top talent, the kind you see at a start-up or innovation lab.

People are working fast and feverishly. They’re focused on changing the way things have been done in the past, and using those metrics for success that you learn in business school. They come from different walks of life, with experiences that range from Chief of Staff Garry Reeder, who went from a trailer park to getting an M.B.A. to understanding that “credit” can be good and bad, to Camille Bussett, who worked in regulatory advocacy at PayPal and EARN, focused on microsavings for low-income populations.

What’s transpired over the past year and what’s to come in the next year?

Consumers: For the first time, a government agency is speaking out for consumers as if they get it. They’ve built some tools to help in areas like college financial aid and customer complaints, held public forums and put out information on everything from reverse mortgages to how military personnel can navigate financially. They’re also working with nonprofits and other government agencies, like the City of New York and Cities for Financial Empowerment, to gather local data that might signal new problems to come and to expand successful programs nationwide.

Credit card agreements: Chances are you’ve never even glanced at these agreements, which is why the CFPB drafted a prototype credit card contract that is shorter and easier for consumers to read. The new agreement eliminates the legal jargon and highlights the information you care about. It’s currently undergoing a pilot with Pentagon Federal Credit Union, one of the largest credit unions in the country with more than 350,000 credit card customers.

Key Bank’s Poppie Parish, senior vice president of economic inclusion and financial education, said, “The CFPB will make sure our credit card statements are very clear for all credit card bills. If you pay the minimum, this is how long it’s going to take, and I think that’s good for anyone, unbanked or affluent.”

Simplified mortgage documents: The “Know Before You Owe” mortgage initiative at the CFPB is making progress. Right now, new rules are going into effect that could radically change and simplify the borrowing process for consumers. Did you ever realize the documents you receive when you are shopping and receiving a mortgage are different? A new rule would require one simplified document instead of two. Other changes include simplified information about interest rates, monthly payments and closing costs for better comparison-shopping and limits on last-minute fees.

Credit card and other complaints: OK, everyone loves to complain, and some 42,000 have done just that regarding credit cards, mortgages and even bank accounts through the CFPB’s site or call center. True, there are places like the Federal Trade Commission, your local Better Business Bureau, or even the company you’re dealing with where complaints can be submitted, but bureaucracy often leads to the land of nowhere and an independent agency provides some relief from fear or intimidation.

I can’t promise that your issue will be resolved, but with new systems designed to leverage technology, the agency is smarter and quicker to act and to spot potential problems early on, before the blowup.

Having the agency in place also compels the companies to act. To give you an idea, for the more than 2,000 complaints through the CFPB where credit card companies reported monetary relief, the median amount consumers received was about $130 with $25 being the most common amount. On the mortgage front, the number one complaint was related to making their payments or loan modifications, collections, or foreclosure. The median amount of monetary relief reported was approximately $410 for the 600 mortgage complaints where companies reported relief.

Bank and nonbank oversight: Consumers have long complained about things like errors on their credit reports, credit monitoring services, or not understanding what impacts their credit score. This week, the CFPB announced that it will be supervising the large credit reporting agencies such as Experian, Equifax, Fair Isaacs, and TransUnion—a first ever at the federal level. And that may well lead to other changes at banks.

“The credit score cannot be the only way we vet whether a person gets certain products and services,” says Parish. “We need to look at ‘alternative scoring’ to help meet the needs of the underserved.”

The data the CFPB collects will, again, inform about any rules they may write. On the banking front, deceptive practices led to the agency’s first enforcement action. The action against Capital One resulted in a $140 million refund for consumers.

Other areas of focus in the coming year will be fees and transparency around the growing area of prepaid cards, overdraft practices at financial institutions, and those mandatory arbitration clauses designed to prevent lawsuits that, if uncontrolled, may choke business.

The goal with any agency is to strike a balance, to allow businesses to grow but to ensure consumers are protected in the process.

If the CFPB continues to employ the same smart thinking and metrics to success it has already, it will monitor the impact of any changes on financial access and services to consumers.

Jennifer Openshaw is author of The Millionaire Zone (Hyperion) and CEO of Family Financial Network. She’s appeared on Oprah, CNN and many other programs. You can reach her at jopenshaw@familyfn.com.

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